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ITA 893/DEL/2006

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6750 (ITAT-DELHI)
• Duration Of Justice: 12 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-07-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 17-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Depreciation; Transfer pricing; Double taxation relief; Opportunity of being heard; Permanent establishment; Advance ruling; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.893/DEL/2006 ASSESSMENT YEAR : 2000-01 ERICSSON TELEPHONE CORPORATION INDIA AB (INDIA BRANCH), 4 TH FLOOR, DAKHA HOUSE, 18/17, WEA, PUSA LANE, KAROL BAGH, NEW DELHI. PAN: AAACE2393M VS. DDIT, CIRCLE-2(1), INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GIRISH DAVE, ADVOCATE, SHRI SAJ IT PARAKH, CA, SHRI SANTDAS WADHWANI, CA, SHRI TARUN GUPTA, CA. DEPARTMENT BY : SHRI SURENDER PAL, SR. DR DATE OF HEARING : 02.07.2018 DATE OF PRONOUNCEMENT : 04.07.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) ON 01.12.2005 IN RELATION TO THE ASSE SSMENT YEAR 2000-01. ITA NO.893/DEL/2006 2 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAI NST THE TAXABILITY OF INCOME OF RS.12,72,61,294/- TOWARDS FEES FOR TECHNICAL SER VICES EARNED BY THE ASSESSEE FROM INDIAN CONCERNS ON GROSS BASIS AT 20 %, BEING THE RATE OF TAX PRESCRIBED U/S 115A OF THE INCOME-TAX ACT, 1961 (HE REINAFTER ALSO CALLED `THE ACT). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT E RICSON TELEPHONE CORPORATION INDIA AB (BRANCH), BEING THE ASSESSEE, IS AN ENTITY INCORPORATED IN SWEDEN WITH LIMITED LIABILITY, WHIC H IS A FULLY OWNED SUBSIDIARY OF M/S TELEFONAKTIEDOLAGET LM ERICSSON A B, SWEDEN. IT SET UP A BRANCH OFFICE IN INDIA TO CARRY OUT ITS BUSINESS ACTIVITY. THE BRANCH OFFICE COMMENCED ITS OPERATIONS IN MARCH, 1995. THE ASSESSEE IS ENGAGED IN THE FIELD OF TELECOMMUNICATION AND MOBILE TELEPH ONY. IN 1995-96, THE ASSESSEE WAS AWARDED CONTRACTS BY INDIAN TELECOM CO MPANIES FOR INSTALLING GSM MOBILE TELEPHONE NETWORK. SUCH COMPANIES INCLU DED RPG CELLULAR SERVICES LTD., BHARTI CELLULAR LTD., JT MOBILES LTD . AND BIRLA AT&T COMMUNICATIONS LTD. IN 1996, THE INSTALLATION CONTR ACTS WITH INDIAN COMPANIES REFERRED TO HEREINABOVE, WERE ASSIGNED TO ERICSSON COMMUNICATIONS PVT. LTD., WHICH IS AN INDIAN COMPAN Y, BUT A WHOLLY ITA NO.893/DEL/2006 3 OWNED SUBSIDIARY OF THE PARENT COMPANY (LM ERICSSON AB). THEREAFTER, ALL THE INSTALLATION CONTRACTS CONCERNING SETTING UP OF MOBILE TELEPHONE SYSTEMS WERE CARRIED OUT BY ERICSSON COMMUNICATIONS PVT. LT D. (ECI), NOW KNOWN AS ERICSSON INDIA LTD. (EIL). THE ASSESSEE FILED I TS RETURN DECLARING BUSINESS LOSS OF RS.3.27 CRORE FOR THE YEAR UNDER C ONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED B Y THE ASSESSING OFFICER THAT THE ASSESSEE HAD THREE STREAMS OF INCOME, NAME LY, GROSS FEES FOR TECHNICAL SERVICES EARNED FROM INDIAN CONCERNS AMOU NTING TO RS.12.72 CRORE; GROSS FEES EARNED FROM FOREIGN SOURCES AMOUN TING TO RS.13.36 CRORE; AND INTEREST INCOME OF RS.1.17 CRORE. INSTANTLY, W E ARE CONCERNED WITH THE DISPUTE WITH REGARD TO FEES FROM TECHNICAL SERVICES EARNED FROM INDIAN CONCERNS. THIS FEE WAS RECEIVED BY THE ASSESSEE FRO M ITS OTHER ASSOCIATED ENTERPRISES (AES) IN INDIA. ON GOING THROUGH THE R ELEVANT INVOICES RAISED BY THE ASSESSEE ON ITS AES, IT WAS OBSERVED THAT TH ESE PERTAINED TO SUPPLY OF TECHNICAL PERSONNEL TO SUCH ENTERPRISES, WHO WERE E NGAGED WITH THE INSTALLATION AND MAINTENANCE OF MOBILE NETWORK SYST EMS CARRIED OUT BY SUCH AES. THE ASSESSEE MADE A COMBINED PROFIT & LOSS ACC OUNT INCORPORATING REVENUES FROM ALL THE STREAMS, FROM WHICH COMMON EX PENSES WERE ITA NO.893/DEL/2006 4 DEDUCTED AND NET LOSS OF RS.3.28 CRORE WAS COMPUTED . COMPUTATION OF INCOME WAS DONE WITH THIS FIGURE OF LOSS OF RS.3.28 CRORE AS A STARTING POINT. CERTAIN ADDITIONS AND SUBTRACTIONS WERE MADE TO/FROM IT FOR DETERMINING TOTAL INCOME AT A LOSS AT RS.3.27 CRORE FOR THE YEAR. THE ASSESSING OFFICER OPINED THAT GROSS FEES EARNED BY THE ASSESSEE FROM INDIAN CONCERNS AMOUNTING TO RS.12.72 CRORE WAS IN THE NAT URE OF FEES FOR TECHNICAL SERVICES. HE CONSIDERED THE PROVISIONS O F ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND SWEDEN (HEREINAFTER ALSO CALLED `THE DTAA). HE FURTHER T OOK NOTE OF PARA 4 OF ARTICLE 12 WHICH PROVIDES THAT IF THE ASSESSEE CARR IES ON BUSINESS THROUGH A PERMANENT ESTABLISHMENT (PE) IN INDIA IN WHICH FEES FOR TECHNICAL SERVICES ARE ARISING, THEN, THE PROVISIONS OF ARTICLE 7 WILL APPLY. HE THEN EXAMINED THE PROVISIONS OF ARTICLE 7(3) TO DEDUCE THAT WHILE DETERMINING THE PROFITS OF A PE, EXPENSES AND DEDUCTIONS SHALL BE ALLOWED SUBJECT TO THE LIMITATIONS IN THE TAX LAWS OF THE STATE IN WHICH THE PE IS LOC ATED. THE ASSESSEE CONTENDED THAT IN TERMS OF CONTRACT WITH ECI, IT CA RRIED OUT CONSTRUCTION, INSTALLATION AND ASSEMBLY OF TELECOM NETWORKS WITH REGARD TO CONTRACTS ENTERED INTO BY ECI WITH VARIOUS INDIAN CELLULAR OP ERATORS AND WAS, HENCE, ITA NO.893/DEL/2006 5 COVERED BY EXCEPTION CARVED OUT IN EXPLANATION 2 TO SECTION 9(1)(VII) AND, CONSEQUENTLY, THE PROVISIONS OF SECTION 44D WERE N OT APPLICABLE. THE ASSESSING OFFICER TOOK NOTE OF A RULING RENDERED BY THE AUTHORITY FOR ADVANCE RULING (AAR) IN THE ASSESSEES OWN CASE IN WHICH SUCH CONTENTIONS WERE REJECTED AND IT WAS HELD THAT THE INDIAN COMPANIES SHOULD DEDUCT TAX @ 30% FROM THE GROSS RECEIPTS PAYABLE TO THE ASSESSEE. THE ASSESSING OFFICER ELABORATELY DISCUSSED THE FINDING S RETURNED BY THE AAR IN ITS RULING AND, EVENTUALLY FOUND THAT THE SAME W AS APPLICABLE IN LETTER AND SPIRIT TO THE FACTS OF THE INSTANT CASE. THIS IS HOW, HE INVOKED THE PROVISIONS OF SECTION 44D OF THE ACT, WHICH PROHIBI T ANY DEDUCTIONS TO A FOREIGN COMPANY IN COMPUTING THE INCOME BY WAY OF F EES FOR TECHNICAL SERVICES RECEIVED FROM INDIAN CONCERNS IN PURSUANCE OF AN AGREEMENT MADE BY THE FOREIGN COMPANY WITH THE INDIAN CONCERNS AFT ER 31.03.1976. IN THIS BACKDROP OF FACTS, THE ASSESSING OFFICER HELD THAT NO DEDUCTION COULD BE ALLOWED FROM THE GROSS FEES EARNED BY THE ASSESSEE FROM THE INDIAN CONCERNS AMOUNTING TO RS.12.72 CRORE. APPLYING TH E TAX RATE OF 20% AS GIVEN U/S 115A OF THE ACT ON SUCH FEES FOR TECHNICA L SERVICES AMOUNTING TO RS.12.72 CRORE, HE FOUND OUT THE AMOUNT OF TAX AT R S.2.54 CRORE. NO RELIEF ITA NO.893/DEL/2006 6 WAS ALLOWED IN THE FIRST APPEAL. THE ASSESSEE IS A GGRIEVED AGAINST THE VIEW REITERATED BY THE LD. CIT(A) ON THE ABOVE ISSUE. 4. THE FOLLOWING ADDITIONAL GROUNDS, WHICH ARE RELE VANT TO THE POINT UNDER CONSIDERATION, HAVE BEEN RAISED:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER AND T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAVE ERRED IN NOT GRANTING THE BENEFIT AVAILABLE TO THE APPELLANT UNDER ARTICLE 25 OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE KINGDOM OF SWEDEN FOR THE AVOIDANCE OF DOUBLE T AXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL, 1997, READ WITH ITS PROTOCOL. 2. THAT WITHOUT PREJUDICE TO THE OTHER GROUNDS OF A PPEAL, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E ORDER PASSED BY THE LEARNED ASSESSING OFFICER AND THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) HAVE ERRED IN NOT GRANTING THE CARRY FORW ARD AND SET-OFF OF LOSSES AND UNABSORBED DEPRECIATION OF THE PAST YEARS AGAIN ST INCOME OF THE CURRENT ASSESSMENT YEAR. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. THE AAR GAVE ITS RULING IN THE ASSESSEES O WN CASE WHICH HAS SINCE BEEN REPORTED AS ERICSSON TELEPHONE CORPORATION VS. CIT (1997) 224 ITR 203 (AAR). IN THIS RULING, THE AAR HAS REJECTED THE ASSES SEES CONTENTION ON THE QUESTION OF APPLICABILITY OF EXCE PTION IN EXPLANATION 2 TO SECTION 9(1)(VII) BY HOLDING THAT: IT SEEMS OVER S IMPLIFICATION TO SAY THAT ITA NO.893/DEL/2006 7 THE APPLICANTS ONLY TASK UNDER THE CONTRACT IS THE ASSEMBLY OF HARDWARE IMPORTED BY THE INDIAN COMPANIES IN A KNOCKED DOWN CONDITION.THE ABSENCE OF THE EXPRESSION INSTALLATION IN THE DEF INITION CONTAINED IN THE EXPLANATION AS WELL AS THE OMISSION OF THE WORD AS SEMBLE IN EITHER THE CONTRACTS BETWEEN THE APPLICANT AND THE INDIAN COMP ANIES OR IN THE STATEMENT OF FACTS BEFORE THE AUTHORITY ARE QUITE E LOQUENT. IT FURTHER HELD THAT: THE NATURE OF PAYMENTS IN THE PRESENT SCHEME WOULD SEEM, PRIMA FACIE , TO FALL SQUARELY WITHIN THE AMBIT OF CLAUSE (VII) OF PARA 2(B) OF PART II OF THE FIRST SCHEDULE TO THE FINANCE ACT. THE ASSE SSEE ARGUED BEFORE THE AAR THAT THE RECEIPTS WERE IN THE COURSE OF A BUSIN ESS CARRIED ON BY IT AND, HENCE, THE SAME SHOULD BE TREATED AS BUSINESS PROFI TS, TAXATION OF WHICH SHOULD BE GOVERNED NOT BY ARTICLE 13, BUT, BY ARTIC LE 7. IT WAS ALSO CONTENDED THAT IT CEASED TO BE FEES FOR TECHNICAL S ERVICES IN VIEW OF APPLICABILITY OF ARTICLE 7(3) AND WOULD NOT ATTRACT THE PROVISIONS OF SECTION 44D AND SECTION 115A. REJECTING SUCH CONTENTIONS, THE AUTHORITY HELD THAT THE RECEIPTS OF THE ASSESSEE WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF ARTICLE 13 OF DTAA. IT FURTHER HELD THAT IN TERMS OF ARTICLE 7(3), THOUGH THE FEES FOR TECHNICA L SERVICES SHOULD BE ITA NO.893/DEL/2006 8 TREATED AS `BUSINESS PROFITS AND EXPENSES INCURRED TO EARN THE SAME ARE TO BE DEDUCTED, BUT, IN VIEW OF SECTION 44D(6), NO DED UCTION COULD BE ALLOWED WHERE THE AGREEMENT WAS ENTERED INTO AFTER 31.03.19 76. IT WAS, ERGO, HELD THAT THE GROSS RECEIPTS, AND NOT THE NET INCOME, SH OULD BE SUBJECTED TO TAX IN THE HANDS OF THE ASSESSEE. 6. ON A PERTINENT QUERY, THE LD. AR ADMITTED THA T THE RULING RENDERED BY THE AAR HAS ATTAINED FINALITY INASMUCH AS THE SAME WAS NOT CHALLENGED BY THE ASSESSEE. IN VIEW OF THE FACT THAT THE DECISIO N RENDERED BY THE AAR HAS BECOME FINAL, IT ASSUMES THE CHARACTER OF BINDING N ATURE ON THE ASSESSEE AS WELL AS THE REVENUE IN TERMS OF SECTION 245S(1) AND THE SAME CANNOT BE CHALLENGED IN OTHER APPELLATE PROCEEDINGS. HOWEVER, SUB-SECTION (2) OF SECTION 245S PROVIDES THAT : `THE ADVANCE RULING RE FERRED TO IN SUB-SECTION (1) SHALL BE BINDING AS AFORESAID UNLESS THERE IS A CHANGE IN LAW OR FACTS ON THE BASIS OF WHICH THE ADVANCE RULING HAS BEEN PRON OUNCED . IT THUS TRANSPIRES THAT A RULING IS BINDING ON THE ASSESSEE AS WELL AS THE AUTHORITIES UNDER THE ACT SAVE AND EXCEPT THERE IS SOME CHANGE IN THE RELEVANT PROVISIONS OF THE ACT OR TREATY AFTERWARDS. ITA NO.893/DEL/2006 9 7. THE LD. AR SUBMITTED THAT THE RULING WAS DELIVER ED BY THE AAR ON 20.06.1996. SUCH A RULING WAS GIVEN BY CONSIDERING THE PROVISIONS OF DTAA BETWEEN INDIA AND SWEDEN, WHICH GOT NOTIFIED O N 27.03.1989. HE STATED THAT SUCH DTAA BETWEEN INDIA AND SWEDEN HAS UNDERGONE A CHANGE AND THE NEW TREATY HAS BEEN NOTIFIED ON 17.12.1997, WHICH GOVERNS THE YEAR UNDER CONSIDERATION. A COPY OF SUCH DTAA HAS BEEN PLACED ON RECORD. IT IS FOUND THAT THE DEFINITION OF FEES FO R TECHNICAL SERVICES GIVEN UNDER ARTICLE 12 OF THE NEW TREATY IS SIMILAR TO TH E DEFINITION OF `FEES FOR TECHNICAL SERVICES GIVEN UNDER ARTICLE 13 OF THE OLD TREATY NOTIFIED ON 27.03.1989, TO THE EXTENT IT IS APPLICABLE TO THE FACTS OF THE INSTANT CASE. THE LD. AR FAIRLY ADMITTED THIS POSITION. HE, HOWE VER, STATED THAT THE PROTOCOL DATED 24.06.1997 APPENDED TO THE NEW TREAT Y HAS BROUGHT IN MATERIAL CHANGES IN SO FAR AS THE ISSUE UNDER CONSI DERATION IS CONCERNED. HE RELIED ON PARAS 2, 3 AND 4 OF THE PROTOCOL TO PUT F ORTH HIS POINT OF VIEW, WHICH READ AS UNDER:- 2. WITH REFERENCE TO ARTICLE 7: IN RESPECT OF PARAGRAPHS (1) AND (2) OF ARTICLE 7, WHERE AN ENTERPRISE OF ONE OF THE CONTRACTING STATES SELLS GOODS OR MERCHANDISE O R CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLI SHMENT SITUATED THEREIN, THE PROFITS OF THAT PERMANENT ESTABLISHMENT SHALL N OT BE DETERMINED ON THE ITA NO.893/DEL/2006 10 BASIS OF THE TOTAL AMOUNT RECEIVED BY THE ENTERPRIS E, BUT SHALL BE DETERMINED ONLY ON THE BASIS OF THE REMUNERATION WHICH IS ATTR IBUTABLE TO THE ACTUAL ACTIVITY OF THE PERMANENT ESTABLISHMENT FOR SUCH SA LES OR BUSINESS. ESPECIALLY, IN THE CASE OF CONTRACTS FOR THE SURVEY, SUPPLY, IN STALLATION OR CONSTRUCTION OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT OR P REMISES OR OF PUBLIC WORKS, WHEN THE ENTERPRISE HAS A PERMANENT ESTABLISHMENT, THE PROFITS OF SUCH PERMANENT ESTABLISHMENT SHALL NOT BE DETERMINED ON THE BASIS OF THE TOTAL AMOUNT OF THE CONTRACT, BUT SHALL BE DETERMINED ONL Y ON THE BASIS OF THAT PART OF THE CONTRACT WHICH IS EFFECTIVELY CARRIED OUT BY THE PERMANENT ESTABLISHMENT IN THE CONTRACTING STATE WHERE THE PE RMANENT ESTABLISHMENT IS SITUATED. 3. WITH REFERENCE TO ARTICLES 10, 11 AND 12: IN RESPECT OF ARTICLES 10 (DIVIDENDS), 11 (INTEREST ) AND 12 (ROYALTIES AND FEES FOR TECHNICAL SERVICES), IF UNDER ANY CONVENTION, A GREEMENT OR PROTOCOL BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER O F THE OECD, INDIA LIMITS TAX TAXATION AT SOURCE ON DIVIDENDS, INTEREST, ROYA LTIES OR FEES FOR TECHNICAL SERVICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THIS CONVENTION ON THE SAID ITEMS O F INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENT ION. 4. WITH REFERENCE TO ARTICLE 25: THE TAXATION IN INDIA OF PERMANENT ESTABLISHMENTS O F SWEDISH COMPANIES, SHALL IN NO CASE DIFFER MORE FROM THE TAXATION OF S IMILAR INDIAN COMPANIES THAN IS PROVIDED BY THE INDIAN LAW ON THE DATE OF S IGNATURE OF THIS CONVENTION. 8. IN SO FAR AS PARA 3 OF THE PROTOCOL HAVING THE M OST FAVOURED NATION (MFN) CLAUSE IS CONCERNED, IT HAS BEEN GRAPHICALLY SET OUT THAT IT ALSO APPLIES ON ARTICLE 12 DEALING, INTER ALIA, WITH FEES FOR TECHNICAL SERVICES AS IS THE CASE UNDER CONSIDERATION. IT PROVIDES THAT I F INDIA HAS ENTERED INTO A CONVENTION ETC. WITH A THIRD COUNTRY, WHICH IS A M EMBER OF THE OECD, ITA NO.893/DEL/2006 11 AND IN SUCH CONVENTION ETC., INDIA HAS LIMITED ITS TAXATION RIGHTS IN TERMS OF RATE OR SCOPE, WHICH ARE MORE BENEFICIAL THAN THAT PROVIDED IN THE CONVENTION WITH SWEDEN, THEN SUCH LOWER RATE OR SCO PE SHALL APPLY IN PREFERENCE TO THE RATE AND SCOPE OF FEES FOR TECHNI CAL SERVICES ENCAPSULED IN THE DTAA WITH SWEDEN. THE LD. AR SUBMITTED THAT IND IA HAS ENTERED INTO DTAA WITH FINLAND, WHICH IS A MEMBER OF THE OECD. A RTICLE 3 OF THE DTAA WITH FINLAND DEALS WITH `ROYALTIES AND FEES F OR TECHNICAL SERVICES AND PARA 4 OF ARTICLE 3 CONTAINS MAKE AVAILABLE C LAUSE, WHICH IS ABSENT IN THE DTAA WITH SWEDEN. HE FURTHER SUBMITTED THAT TH E SCOPE OF NON- DISCRIMINATION CLAUSE IN ARTICLE 25 HAS ALSO BEEN E XPANDED IN THE PROTOCOL. 9. INDISPUTABLY, WHEN THE HON'BLE AAR RENDERED ITS RULING IN 1996, THE NEW DTAA BETWEEN INDIA AND SWEDEN NOTIFIED ON 17.12 .1997 WAS NOT IN VOGUE AS IT CAME INTO EXISTENCE ONLY AFTER THE RULI NG. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2000-01. AS PER THE LD. AR, THE PROTOCOL UNDER THE DTAA OF 1998 HAS THE EFFECT OF CHANGING THE COMPLEX ION OF THE CASE AS HAS BEEN DECIDED BY THE AUTHORITIES BELOW. THIS ARGUME NT WAS COUNTERED BY THE LD. DR ON A PRELIMINARY ISSUE, WHO SUBMITTED THAT T HE PROTOCOL WILL HAVE NO ITA NO.893/DEL/2006 12 APPLICATION AS IT CAN BE RESORTED ONLY IF THERE IS SOME DISPUTE ON THE TERMS OF THE DTAA. 10. WE ARE NOT CONVINCED WITH THE CONTENTION PU T FORTH ON BEHALF OF THE REVENUE. A PROTOCOL TO THE DTAA IS, FOR ALL PRACTIC AL PURPOSES, TO BE CONSIDERED AS ITS PART AND PARCEL. THERE IS NO QUES TION OF RESORTING TO IT ONLY IF SOME CLARITY IS WANTING IN THE DTAA. IN FACT, A PROTOCOL COMPLETES THE DTAA. IF A PARTICULAR BENEFIT IS BEING CONFERRED, E XPANDED OR REDUCED BY THE PROTOCOL, WHICH IS ABSENT IN THE DTAA, THEN THE PROVISIONS OF THE PROTOCOL SHALL APPLY PRO TANTO . A PROTOCOL CANNOT BE VIEWED AS A DOCUMENT INDEPENDENT OF THE DTAA AND HAS TO BE CONSIDERED AS ITS ADDENDUM. WE, THEREFORE, DO NOT APPROVE THE PRELIMINARY CONTENTIO N ADVANCED ON BEHALF OF THE REVENUE. 11. REVERTING TO THE FACTS OF THE EXTANT CASE, IT IS SEEN THAT THE AUTHORITIES BELOW HAVE DECIDED THE ISSUE OF TAXABILITY OF THE A MOUNT OF FEES RECEIVED BY THE ASSESSEE FROM TECHNICAL SERVICES EARNED FROM IN DIAN CONCERNS SIMPLY ON THE BASIS OF THE RULING GIVEN BY THE AAR. THE FACT OF THE MATTER IS THAT THE DTAA, UNDER WHICH SUCH RULING WAS RENDERED, HAS BEE N SUBSTITUTED AS ITA NO.893/DEL/2006 13 DISCUSSED SUPRA . IN SUCH CIRCUMSTANCES, THE PRESCRIPTION OF SECTIO N 245S(2) GETS ATTRACTED, WHICH REQUIRES CONSIDERATION OF THE ARGUMENTS OF THE ASSESSEE IN THE LIGHT OF THE SUBSTITUTED DTAA ALONG WITH ITS PROTOCOL TO THE FACTS OF THE INSTANT CASE. SUCH NEW DTAA AND THE PR OTOCOL HAVE NOT BEEN CONSIDERED BY THE ASSESSING OFFICER, WHO HAS SIMPLY GONE BY THE RULING RENDERED BY THE AAR. AS SUCH, WE ARE OF THE CONSIDE RED OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGN ED ORDER ON THIS SCORE IS SET ASIDE AND THE MATTER IS REMITTED TO THE FILE OF ASSESSING OFFICER. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THE ISSU E AFRESH BY CONSIDERING THE EFFECT OF ALTERATIONS, INTRODUCED IN THE NEW DT AA OF 1998 ALONG WITH THE PROTOCOL, IF ANY, ON THE RULING GIVEN BY THE AA R IN THE ASSESSEES OWN CASE. IN OTHER WORDS, IF THE NEW DTAA AND THE PROTO COL REALLY IMPACT THE RULING GIVEN BY THE AAR AGAINST THE ASSESSEE ON THE ISSUE, THEN, THE RULING SHOULD BE APPLIED IN THE LIGHT OF SUCH AMENDMENTS. THE DECISION ON ISSUES DECIDED BY THE AUTHORITY, WHICH REMAIN UNALTERED BY THE DTAA OF 1998 OR THE PROTOCOL, WILL HAVE TO BE APPLIED AS SUCH. IT I S MADE CLEAR THAT DISCUSSION OF THE NEW DTAA OR THE PROTOCOL ABOVE SHOULD NOT BE CONSTRUED AS REFLECTION OF OUR OPINION ON ITS APPLICABILITY OR O THERWISE TO THE FACTS OF THE ITA NO.893/DEL/2006 14 INSTANT CASE. THE AO SHOULD DECIDE ITS IMPLICATIONS INDEPENDENTLY ON MERITS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOW ED A REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 12. THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAINST ALLOCATION OF EXPENSES. THE ASSESSING OFFICER FOUND THAT SOME OF THE EXPENS ES MADE BY THE ASSESSEE WERE NOT IN ACCORDANCE WITH THE ARMS LENG TH PRINCIPLE. THE ASSESSEE SHARED THE GENERAL AND ADMINISTRATION (G&A ) EXPENSES BORNE BY ERICSSON COMMUNICATION PVT. LTD. (ECI), AN ASSOCIAT ED ENTERPRISE, IN A RATIO WHICH HAD NO RELATION WITH THEIR TURNOVERS AN D ACTIVITIES IN INDIA. THE ASSESSING OFFICER TOOK INTO CONSIDERATION THE COST SHARING AGREEMENT DATED 01.10.1998. IT WAS FOUND THAT OUT OF TOTAL EXPENSE S INCURRED (BEFORE SHARING) AMOUNTED TO RS.31.89 CRORE AND THE ASSESSE E WAS ALLOCATED EXPENSES OF RS.5.01 CRORE, WHICH WAS CLAIMED BY IT TO BE ON THE BASIS OF HEAD-COUNT. THE ASSESSEE WAS CALLED UPON TO FURNIS H FINAL ACCOUNTS OF ECI FOR THE YEAR 1999-2000. THE ASSESSEE FURNISHED ACC OUNTS PERTAINING TO THE PERIOD 01.04.1999 TO 31.12.1999, THE GROSS REVENUE OF ECI DURING WHICH PERIOD AMOUNTED TO RS.297.93 CRORE. THE ASSESSEES GROSS REVENUE FOR THE CORRESPONDING NINE MONTHS PERIOD WAS TO THE TUNE OF RS.27 CRORE. AS THE ITA NO.893/DEL/2006 15 ASSESSEE COULD NOT EXPLAIN THE MISMATCH BETWEEN THE TURNOVER RATIO AND COST ALLOCATION RATIO, THE ASSESSING OFFICER ADOPTE D THE ASSESSEES SHARE IN SUCH EXPENSES AT 7%, WHICH CAME TO RS.2.23 CRORE. APART FROM G&A EXPENSES, THE ASSESSEE ALSO PAID RS.1.26 CRORE AS LEASE RENTAL TO ECI. SUCH EXPENSE WAS ALSO FOUND NOT TO HAVE BEEN PROPERLY AP PORTIONED. IN THIS BACKDROP OF FACTS, THE ASSESSING OFFICER DETERMINED THE ASSESSEES SHARE IN COMMON EXPENSES AT RS.2.23 CRORE. SUCH EXPENSES WE RE ALLOCATED AGAINST THE GROSS FEES EARNED FROM FOREIGN SOURCES IN THE R ATIO OF GROSS FEES EARNED FROM INDIAN SOURCES VIS--VIS FOREIGN SOURCES. THAT IS HOW, INCOME EARNED FROM FOREIGN SOURCES WAS DETERMINED AFTER ALLOWING DEDUCTION OF SUCH APPORTIONED EXPENSES. THE LD. CIT(A) DID NOT CHANG E THE FORTUNE OF THE ASSESSEE ON THIS POINT, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 13. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSEE BOOKED PRO PORTIONATELY MORE EXPENSES AS ITS SHARE IN ECIS EXPENSES. WHEN THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE FINAL ACCOUNTS OF ECI FOR THE YEAR, THE ASSESSEE FAILED TO COMPLY WITH THE SAME AND GAVE FI GURES ONLY FOR A PERIOD ITA NO.893/DEL/2006 16 OF NINE MONTHS. OTHER NECESSARY DETAILS AS CALLED FOR WERE ALSO NOT FULLY PROVIDED. THIS LED TO THE ALLOCATION OF EXPENSES O N THE BASIS OF TURNOVER. IT IS, BUT, NATURAL THAT IN THE ABSENCE OF ANY WORTHWH ILE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER COULD HAVE NO O THER RATIONAL BASIS TO APPORTION THE EXPENSES. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS GOT NECESSARY DETAILS WHICH CAN BE PRODUCED BEFORE THE AUTHORITIES BELOW. TAKING A HOLISTIC VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF ASSE SSING OFFICER FOR DECIDING THIS ISSUE AFRESH AS PER LAW, AFTER ALLOWING A REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 14. NO OTHER ISSUE WAS ARGUED BEFORE US. 15. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.07.201 8. SD/- SD/- [K. NARASIMHA CHARY] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 04 TH JULY, 2018. DK ITA NO.893/DEL/2006 17 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.